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Is the Failure of Android Wear a Dire Warning for Apple Watch?

By Leo Sun – Mar 1, 2015 at 9:30AM

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Android Wear devices sold poorly last year. What does that mean for the upcoming Apple Watch?

Google(GOOG -0.52%) (GOOGL -0.39%) Android Wear, a slimmed down OS for smart watches, is getting off to a slow start. According to research firm Canalys, Google partners shipped just 720,000 Android Wear devices last year out of a total of 4.6 million smart wearable bands.

The Android Wear-powered Moto 360 (left) and Apple Watch (right). Source: Company websites

Google initially unveiled the first Android Wear devices last June. Of those, the Motorola Moto 360 and LG G Watch R were the top sellers. However, the OS was hurt by complaints about its short battery life and poorly tailored software. Since Apple (AAPL 1.55%) Watch reportedly has a comparable battery life to competing devices, could weak initial sales of Android Wear be considered a dire warning for Apple's smart watch efforts?

Understanding Apple's core strengths
Research firm Canalys expects Apple to sell 16 million smart watches within the first year. That is a fairly conservative estimate compared to the 30 to 60 million units that Morgan Stanley's Katy Huberty is forecasting. So why do analysts believe that Apple Watch can outsell Android Wear devices by such a wide margin?

Just as with smartphones and tablets, Apple's key advantage is that it develops both its hardware and software. Apple is willing to shoulder the manufacturing risks, but Google is not -- that is why it sold Motorola Mobility to Lenovo last year. Thanks to that union of hardware and software, it should be easier to develop apps for Apple Watch than Android Wear devices, which could suffer from compatibility issues due to hardware fragmentation. Therefore, better designed Apple Watch apps could address complaints about clumsy software.

Apple's other key strength is its brand appeal. Last quarter, Apple sold a whopping 74.5 million handsets by offering just a few models of the iPhone. Samsung sold 75.1 million units but only did so with dozens of different low to high-end devices. Since Apple Watch will be only compatible with iPhones, it adds an additional layer of exclusive appeal which Android Wear devices sorely lack. Based on JPMorgan analyst Rod Hall's estimate of 235 million iPhones sold in 2015, 16 million Apple Watches would represent a mere 7% of new iPhone owners -- certainly an achievable goal.

Apple fans usually forgive its shortcomings
Apple fans also often overlook or forgive hardware and software flaws. For example, the "Antennagate" debacle with the iPhone 4 did not crimp demand for subsequent iPhones. Videos of bent iPhone 6 Plus handsets did not scare customers away. The iOS 8 update caused all sorts of problems, but it is now just a distant memory. Considering how forgiving Apple consumers can be, it probably will not matter if Apple Watch launches with software bugs or a comparable battery life to Android Wear devices.

A survey from Fixya last May also found that 10% of surveyed Galaxy Gear owners were dissatisfied with its single day battery life, yet 10% of Pebble owners were still unhappy, even with a week-long charge. This means that smart watch owners are equally accepting of powerful devices with a weaker battery life and spartan ones which last longer. This arguably makes Apple Watch's battery life a nonissue in terms of future sales.

Pebble Watch. Source: Company website

What Google got wrong
The biggest problem with Google's mobile strategy is that it is afraid to get its hands dirty with the manufacturing process. Apple refines a single product which consumers eagerly anticipate, while Google hands out free software in hopes that one of its hardware partners will launch a desirable product.

Unfortunately, hardware manufacturers know that Google just wants to monetize their customers by tethering them to its search and app ecosystems. That is why Samsung -- the top Android manufacturer in the world -- launched Tizen, its homegrown OS, which is now installed on most of its smart watches.

Therefore, only weaker second-tier mobile players like Asus and LG will rely solely on Android Wear devices. But without the marketing muscle of its larger rivals, these Android Wear device makers will likely be crushed between a flood of wearable Samsung devices and the upcoming Apple Watch. When that happens, smart watch app developers will likely favor Tizen or iOS over Android Wear. Without proper app support, Google's remaining hardware partners could abandon the platform.

What it all means for Apple
In conclusion, weak sales of Android Wear devices should not be considered a red flag for Apple Watch sales. Android Wear devices are not catching on due to Google's dependence on second-tier mobile companies to do the heavy lifting. In my opinion, Apple Watch will likely fare better, thanks to the device's strong identity, pent up anticipation, and brand appeal. Therefore, what's bad for Google could actually be great for Apple.

Leo Sun owns shares of Apple. The Motley Fool recommends Apple, Google (A shares), and Google (C shares). The Motley Fool owns shares of Apple, Google (A shares), and Google (C shares). We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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